Friday 29 June 2012

Basement Suites - Do Your Homework!

A few days ago, there was a great article on basement suites in the Globe and Mail.
See the full article “HERE”.

Funny enough, I had planned on writing a blog post on basement suites, but they beat me too it!....so I’ll use their article (with great thanks)….and put my own spin on it!
If you are looking to buy a house with a basement suite (see also: inlaw suite, granny flat, accessory apartment, etc), you need to weigh some pros and cons as mentioned in the Globe article:
1. Consider your privacy.
Can you live with seeing a stranger around your house or using your property outside? Is the extra money worth it?


2. Try to avoid renting to family.
It is best not to rent to family, as it completely changes the relationship and is difficult to use “eviction” or “collection” rules against a non-paying family member without destroying the relationship and having the repercussions ripple out into the rest of the family.
3. Sign a proper written lease.
Always – even with family members – have a properly written lease between you and the tenant that clearly outlines the rules, late rent penalties, expectations, and length of term. It must be signed by every adult who is to reside in the suite.
4. Don’t set your rent too low.
Never be the lowest rent in the market – you will attract the type of renter whose focus is solely on dollars. It will also lead to more rapid turnover as they leave to the next “lowest rent” spot. To set the proper rent for your suite, go online and search for available units in your area. Make sure to look at a number of different sites and be location-specific in your comparisons. Look at the amenities and picture them through the eyes of a potential renter. Then place your price in the middle or higher end of the average comparable.
5. Do your research.
Each province and territory has its own landlord-tenant legislation so make sure to read up on the rules that apply where you live. In addition, make sure to research your local municipal bylaws, which include things like guidelines and standards for fire and building safety. Municipal bylaws also cover issues like zoning and permits. For example, some cities are now looking to shut down secondary suites in specific neighbourhoods. Not conforming to these rules means you could be shut down at a moment’s notice, so check with the city to make sure that your suite is legal. The Canada Housing Mortgage and Housing Corp. has a useful website
with many good links.
6. Tell your home insurance company.
When you rent out a unit in your home, you are obliged to inform your home insurance company – something that the vast majority of people fail to do. If anything were to happen, for instance if a fire starts in the rental suite, the insurance company could say they were not informed of the tenant and that the policy is voided.
7. Research the tax repercussions.
Once you have a rental suite in your home, you have to claim that rental income on your tax return. In addition, once you start using the property for revenue, a portion of the capital gain when selling the property could be deemed taxable.
8. Learn from other landlords.
Knowing the tricks of the trade is important and who better to learn from than other landlords? Talk to as many as you can about the pros and cons of basement suites.  If you don’t know any, ask a realtor!
My advice for either developing or purchasing a home with a basement suite?  Do your homework….and then when you are done your homework, do some more.
This past spring, I was almost caught with my pants down when the city inspectors came knocking.  Even though I had done research into basement suites, I had overlooked a few key points….Several months later and some serious stress, I now have a legal two unit dwelling, but I feel like I aged about 10 years during the process!  Don’t let this happen to you!  More on this in a future post!

Monday 11 June 2012

Something has Gone Wrong With Every Home I Have Purchased….and Have an Exit Strategy!!


Yes, you read that title correctly.  Something has gone wrong with everyone investment that I have made and funny enough, there were warning signs for every problem.  Does this mean I panicked and sold the property?  No, but sometimes I do think about that.  Actually, not a month goes by when I don’t consider selling all of my assets, but I have committed myself to the long haul here and I need to stick with it.
What does this mean for my future investments?  Heed the signs, but don’t think that every investment is going to be perfect.
As always, make sure you are doing due diligence.  It is important to know what you are getting into and have a plan for some of the ‘foreseeable’ issues that are typical of the type of investment you are looking at.
For real estate, I am a firm believer that it is important to have an exit strategy BEFORE making a purchase.  This strategy can change from time to time, but having something in place is very important.
My student rental is one example.  I purchased this property in 2009 and since then, the investment landscape in Kitchener/Waterloo has gone through several changes and fluctuations.  The recent implementation of licensing fees and new regulations for lodging houses has affected me somewhat, but not to the point that I cannot deal with it.  Luckily, 5 bedroom lodging houses were grandfathered into the rental system (going forward, 3 bedrooms is the maximum) so I’m thinking that my property will actually increase in value….once the storm cloud raises around this licensing debacle.  To read more on what changes took place, click HERE.

I personally think it will take a year or two for this licensing issue to ‘blow over’ and KW will start looking like a positive place to invest again, but I digress….back to my exit strategy!
I have 3 separate exit strategies in place for this property.
1.       Keep it as a student rental and sell it as a student rental - My plan here would be to rent it out and sell it several months before the lease is up.  For example, I would sell it in November or December with a lease that runs until April 30th.  That way, I am offering a “turn-key” investment with tenants already in place that will cash flow for 5 or 6 months before the new owner will have to think about getting new tenants.  No worries about vacancy = simple investment!!

2.       Sell it as a single family home – This house is in a great area and is near schools, shopping, churches and other amenities.  I could always put a little money into renovations and flip it to a family.

3.       Rent to own – As I have mentioned, I do have a couple of rent-to-own properties and this is one way I could keep good cash flow and have a predetermined selling price 2 or 3 years in the future.   Again, I would have to put in some money towards renovations, but this would just be cosmetic.
All of these are options and who knows…I might just keep it forever! J But the most important thing here is to have options.  Life throws curve balls constantly and if the need arose to sell this property, at least I have done some planning ahead of time!
What do you think?  Keep, sell as a rental, sell to a family, RTO?